Energy and Climate Policy

U.S. energy and environmental policy is massively complex — but every facet of our lives is affected by it and we all share the same planet. Within the current regulatory landscape, there are a host of policies that may have once made sense individually but that do not add up to a coherent whole.

While it’s impractical to suggest rewriting all of our energy policy from scratch, there are many easy, high-impact policy changes that we can and should make to lower energy costs, decrease pollution, and create jobs.

My approach to energy and environmental policy is informed by the following:

There is no inherent trade-off between increased energy efficiency and economic gain. For decades, environmental policy discussions have been framed around the fallacy that there is conflict between the environment and the economy. Too many rules and regulations have been crafted with this mistaken assumption. These rules have led to inefficient and unnecessary trade-offs, often disincentivizing win-win investments that many energy and environmental experts know exist. Fixing these policies doesn’t require political conflict — it requires electing experts who understand the issues and can reach across the political divide.

Energy and environmental policy must incentivize goals, not paths. The Homestead Act instructed citizens to “go west, improve the land, and you can keep it.” It was massively successful because it rewarded the goal. It did not instruct citizens to “buy a Conestoga wagon, hitch it to a team of not less than 6 horses, and head west via one of three routes identified in Exhibit G, and plant a field with one of 4 approved crops. If you do this, we will provide you with a tax credit equal to 10% of the capital you invested subject to schedule D attached hereto.” Our energy policy does the latter. We provide wildly different incentives and mandates for technologies that deliver otherwise identical environmental outcomes. This has led to less than optimal investment decisions and has slowed the adoption of many economically beneficial clean-energy technologies. Shifting to a goal-based regulatory model would unleash massive economic activity while simultaneously rewarding environmentally beneficial outcomes.

Our environmental regulatory model must change to prioritize CO2 reduction. The Clean Air Act has done wonders to clean the air, but was never designed to account for a pollutant that scales with fuel combustion rather than the use of exhaust control technology. Modernizing the Clean Air Act to incentivize and reward energy efficiency and conservation is critical to ensure we protect the planet and reduce CO2 as quickly – and as cheaply – as possible.

On the margin, tax policy is a bad way to incentivize investment. Businesses that meet social goals to invest in clean energy technology typically have very little taxable income, thanks to the depreciation and interest expense that naturally result from that investment activity. Providing further tax incentives, whether through production tax credits, investment tax credits, or accelerated depreciation schedules, too often provides tax credits that businesses can’t use. This has been a windfall for banks that provide so-called “tax equity” financing, but means that a significant portion of the money we allocate for clean energy flows to financial services businesses rather than to those who are leading the clean energy revolution.

The U.S. must use the power of competitive markets to encourage energy innovation, coupled with a strengthened antitrust program. Alfred Kahn, former Chairman of the Civil Aviation Administration, famously wrote that when markets are deregulated, the burden of consumer protection shifts from rate regulation to antitrust enforcement. The 1992 Energy Policy Act set in motion the national deregulation of our energy industry, but then proceeded inconsistently and incompletely across the 50 states. The result is that much of the electric industry has abandoned historically socialized “obligation to serve” benefits but has not yet fully embraced competitive markets. This “half-pregnant” model is far from ideal, as utilities now lack any real incentives to build the long-term capital assets that we need to ensure future energy security and reliability. Market power is still far too concentrated in certain regions, keeping new entrants from challenging incumbent monopolies.

We too often confuse the interests of extractive industries with the interests of energy consumers. Miners and oil drillers have a vested interest in maximizing the rate of resource extraction / depletion. Every other sector of the economy — from oil refining to trucking, from wind turbine manufacturers to homeowners — has a vested interest in getting as much value as possible from as little energy input as possible. Energy efficiency is the common thread that unites the overwhelming majority of the country’s businesses and consumers, but gets short-shrift in our energy policy. And unlike extractive industries, energy efficiency is fuel-agnostic. Good policy should always first maximize the efficiency for all fuel sources and only then get bogged down in the merits of any particular fuel.

As a member of Congress, I will work to improve our climate and energy policies in the following ways:

Champion output-based standards. Many pollution standards crafted subject to the Clean Air Act have targets and compliance obligations based on a so-called “input-based” standard. This often creates an inadvertent disincentive for energy efficiency as lower fuel consumption will — all else being equal — make it harder to meet pollution-per-unit-input metrics. Several states have led the way in converting to an “output-based model” that sets allowable pollution limits per unit of useful output (e.g., pollution per kilowatt-hour). I will work to nationalize this approach, which has already been proven to work at a state level.

Pass a national Fossil Energy Reduction Standard. Many states have adopted “renewable portfolio standards” that direct their utilities to ensure that a certain portion of their energy generation mix comes from renewable resources. But almost every state has a different definition of “renewable energy” and provides a different incentive level for different types of renewable energy. There have been several failed attempts to pass a national Renewable Portfolio Standard, which have gotten bogged down in the same definitional challenges. I propose instead the creation of a national “Fossil Energy Reduction Standard” that mandates a rising percentage of power from power sources that reduce fossil energy use, without any preference on technology.

Direct federal agencies to lead by example. The federal government is the largest single purchaser of electricity in the country. For many other social goals — from Davis-Bacon procurement rules to minority- and women-owned business incentivization — we have willingly and successfully used federal purchasing guidelines to drive change. This proposal applies that logic to clean energy. Under this plan, the federal government would direct all government-owned buildings and properties to purchase a stipulated and rising percentage of their electricity from clean sources — just as major Fortune 500 companies like Walmart and PepsiCo already have done voluntarily. This would not only accelerate the adoption of clean sources, but would also provide a critical offtake contract to clean energy developers — often the single biggest barrier to clean energy project financing.

Eliminate efficiency disincentives in major modification section of Clean Air Act. Under the New Source Performance Standards (NSPS) of the Clean Air Act, facilities with air permits are not allowed to increase the output of a permitted source without being subject to a re-opening of their air permit. While this prevents companies from sneaking new sources into their old permit, it inadvertently discourages those same businesses from investing in efficiency that would increase plant output without requiring additional fuel combustion / pollution. This causes many power plants to actively avoid investments in energy efficiency for permitted facilities. It also creates an opportunity, as a simple fix would both create an immediate incentive for significant, nationwide capital investment and reduce the energy-intensivity of our economy.

Support nationwide CO2 regulation, governed by three goals: (1) incentivize the most rapid possible reduction in greenhouse gas emissions; (2) given scarce resources, favor the most cost-effective greenhouse gas reductions available; and (3) encourage the construction of the capital-intensive assets needed to overhaul and modernize our energy system. These three goals are paramount, and are vastly more important than models that penalize CO2 emitters.

Replace tax credits with revenue grants (at least for clean energy sources). I will advocate to amend clean energy tax incentive regulations to provide investors with an option to take their tax credit as a revenue grant, set to be equivalent to the dollar value of the tax credit multiplied by their marginal tax rate.

Identify and eliminate economically inefficient cross-subsidies that discourage the development of clean energy sources. Incumbent energy providers in the U.S. benefit from a host of historic policy decisions that have a practical effect of lowering the apparent costs of dirty energy to consumers. These range from the health costs of pollution that are borne by our health system to the military costs of protecting foreign shipping lanes that are paid out of our income taxes (to name just a couple). Meanwhile, new energy sources — from biofuels to solar electricity — must compete economically, bearing their full costs of fuel procurement, distribution, conversion, and delivery. The resulting economic inefficiency distorts market forces and slows the adoption of cleaner technology. Identifying and fixing these market failures will lower total energy costs, clean the air, and grow the economy.